Posted on

Paying Influencers with Compliance: What You Need to Know

While influencers offer marketers new opportunities to reach new audiences with authenticity and, crucially, generate ROI—that explosion in influencer activity brings about a set of new and growing risks. Specifically, risks of compliance.

judge hammer
judge hammer

Key takeaways

  • The rapid growth in the use of influencers in marketing campaigns has increased the compliance risks companies face.
  • These compliance risks are often related to payments—ensuring creators are paid properly and their private information is stored securely.
  • Compliance risks are also often related to ensuring the commercial relationship between brand and influencer is transparent, with full disclosure required in all promotional content.
  • Companies can stay clear of risk by encouraging influencers to include disclosure terms like #AD in their content, by staying on top of changes to local regulations, by building their own compliance policies, and by incorporating a proven digital payments solution to pay creators safely.

More and more businesses are using influencers as a central pillar in their marketing strategies—especially when it comes to social media. Given the numbers, it’s obvious why:

  • Some surveys suggest 93% of marketers have used or considered using influencer marketing in their work.
  • The value of the influencer marketing industry as a whole is set to pass the $16bn mark this year.
  • A study of marketers revealed influencer content generates 8x more engagement than branded content on average.
  • Influencer marketing ROI is 11x greater than traditional digital marketing forms such as banner ads.

What is influencer compliance?

Compliance is, on paper, following a set of rules. However, it’s a lot more complex than that. Even in long-established categories such as health and safety, or finance, these rules change and adapt all the time. In a fast-moving and growing category like influencer marketing—where the rules are a patchwork of industry regulations and federal, state, and local laws—it can be hard to keep up.

Compliance in influencer terms can cover areas like privacy, confidentiality, accuracy, and payments. There’s often a great deal of crossover between these areas—especially in payments compliance, which is repeatedly one of the more contentious issues for marketers employing influencers.

Within the domain of influencer payment compliance, there are crisscrossing sub-sections to be aware of, which can make following the rules even more confusing.

In this blog, we’re looking specifically at paying influencers in a compliant way and ensuring the transparency of those payments meets compliance expectations.

Paying influencers properly: the challenge

The first of these challenges—ensuring payments meet relevant regulations—has been made harder by the boom in influencer use. The rapid growth of companies partnering with influencers who are often sole traders working for themselves has increased the number of new payment and compensation processes that companies have to follow. In turn, this ups the number of ways they can fall foul of regulators.  

Larger agencies with dedicated in-house compliance specialists are better suited to adapting to meet the challenge. However, smaller entities with less well-equipped finance departments can be overwhelmed with tasks that are time-consuming, complicated, and require extensive collaboration between marketing and finance teams.

Their financial systems might not be able to cope with rapidly scaling demands, leading to potential problems around data privacy, storage, audit risk, and transparency.

Kim Kardashian and issues of transparency

That’s the in-house challenge when it comes to compliance. Next, we come to the transparency responsibilities influencers—and by association, the companies they partner with—must meet.

Current regulations stipulate that influencers must make it clear when they have been paid to promote a product to their audiences. Regulators are strict on the matter. They believe consumers can be left confused over whether the influencers they follow—whose opinion they value highly—genuinely view a product as high quality or if they are simply promoting it because it earns them money.

This is why influencer content you see is labelled with #sponsor or #ad—so consumers can make informed decisions about the products they buy, and to level the playing field for brands against the enormous power of macro influencers—and the brands that can afford them—wield.

The recent case of Kim Kardashian and the crypto company EthereumMax highlights how tricky transparency is to achieve and why regulations are important.  

In October 2023, the Securities and Exchange Commission (SEC), the U.S. Federal body that protects against market manipulation, announced they were pursuing charges against reality TV star and entrepreneur Kardashian. She was charged with failing to meet regulations in posts to her millions of social media followers related to ethereumMax. In the post (below), Kardashian promoted the company’s EMAX tokens and linked to their website with instructions for potential investors to purchase EMAX tokens.

Via Business Insider

While she included the hashtag “#Ad” at the bottom of the post, the ‘break the internet’ star broke compliance rules by failing to disclose information about the $250,000 she received for the promotion. In return for that failure, Kardashian was hit with $1.26 million in fines, disgorgement, and interest.

The story does not end there, however. Kardashian has since been instructed to cooperate with the SEC’s ongoing investigation—suggesting ethereumMax could soon be under investigation and facing financial penalties too for failing to ensure the transparency of their influencer payments.

It’s not just mega creators in the public eye who are at risk of legal action if they fail to meet compliance regulations either. Gaming influencers Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell were charged by the Federal Trade Commission (FTC)—a powerful consumer protection body in the U.S.—for endorsing online gambling service CSGO Lotto without revealing they jointly owned the company.

As FTC Acting Chairman Maureen Ohlhausen sumarised after the GSGO Lotto case:

Consumers need to know when social media creators are being paid or have any other material connection to the brands endorsed in their posts. “This action, the FTC’s first against individual creators, should send a message that such connections must be disclosed so consumers can make informed purchasing decisions.” The dangers that both influencers and the marketers who employ them face are there for all to see.

Knowledge is power: How to mitigate influencer payment risks

It’s a tough ask for companies to ensure they’re paying influencers in a way that meets regulations and that influencers are complying with differing laws around the world.

The biggest weapon any company has at their disposal is knowledge. Staying as up to date with compliance rules related to influencer marketing is the biggest failsafe against regulatory trouble.

This section covers the different regulations for payment and transparency, explains some of the variations around the world, and provides advice on what companies can do to protect themselves and their clients.

1. Stay on top of paperwork and tax forms

Paperwork is a pain—especially when working with several influencers at the same time. But, accurate paperwork is the proof needed when regulators check payments are being carried out according to the law.

So, when it comes to paying influencers, companies should first understand their influencer’s employment status—likely a self-employed sole proprietor who files their taxes.

Then, companies should issue the relevant paperwork and tax forms, depending on local laws.

For example, businesses in the US should collect a W-9 IRS form from creators based in the US. If working with a non-US resident—remember, influencers are often based around the world—then a W-8BEN IRS form has to be completed to meet tax compliance regulations.

Similar regulations exist across Europe. For example, in the Netherlands, marketers must put in place what’s called a “model agreement” between their company and the freelance influencer to establish there is no formal employment relationship between the two parties. Otherwise, the marketer will be required to pay payroll taxes for the freelancer.

It’s also worth drafting terms and conditions that set out the company’s relationship and agreement with each influencer they work with. This could include remuneration, client expectations, copyright agreement over assets created, and expectations of ensuring transparency of the company/creator relationship in public posts.

2. Secure PPI data

In building a relationship with an influencer and ensuring payment is completed successfully and legally, companies require large quantities of personal identifiable information (PII).

For example, in the United States, this includes information related to:

  • Name
  • Email Address
  • Signed W-9 (US)
  • Signed W-8BEN (Outside the US)
  • Banking information, including account holder name, bank name, routing number, and account number.
  • Methods of payment, such as PayPal, direct deposit, or wire transfer

Like every organisation holding large quantities of PII data, companies working with influencers are subject to local and regional privacy regulations. Around the world, these include:

These regulations overlap and apply to influencer marketers for good reason. By holding personal information, marketers can be the target of hackers on the hunt for personal information for identity theft and fraud attacks.

Each regional body has its advice for companies to prevent a security breach. For example, GDPR recommends encryption of all devices under the watch of organisations, because “if your data is encrypted and there is a breach, the data will be illegible and useless.”

In the United States, companies are asked to follow a set of key principles on the advice of the FTC:

  • Keep an inventory of company computers, mobile devices, flash drives, or any other digital or print mechanism that stores all personal information.
  • Streamline the information these devices hold, and ensure the company only holds the data required to do its job
  • Encrypt information through “physical security, electronic security, employee training, and the security practices of contractors and service providers.”
  • Ensure sensitive information is properly disposed of
  • Prepare guidelines and a contingency plan if security incidents occur

3. Make full disclosure a priority

To avoid running into the same trouble as Kim Kardashian, marketers and the influencers they partner with have to ensure promotional content includes full disclosure—as per the clear rules set out in numerous countries.

It’s worth reading up on local regulations before beginning a campaign—though the advice set out below will be useful regardless of where a company runs its marketing campaign.

In America, the FTC asks influencers to make it clear in every social post if they have any kind of “material” relationship with the brand they are promoting.

According to the FTC, a material connection includes “a personal, family, or employment relationship or a financial relationship – such as the brand paying you or giving you free or discounted products or services.”

The FTC adds that disclosures have to be prominent so that no one can miss them. That means included in the content itself, first page, or above the line.

Rules in the U.K. offer some handy advice too. The Competition and Markets Authority advises that to avoid risks, marketers should make sure disclosure is clear and ambiguous. That means avoiding terms and abbreviations like #gift, #gifted, #sponsored, #spon, #aff, #affiliate, #collab, and #PRTrip.

Over in France, marketers are bound by law to “specify that their communication results from a partnership with a brand or a trader and that they are paid to promote the products they present.

Similarly, in Spain, the government has made it illegal to conceal a partnership and their code of conduct states that, if the nature of the advertising is not clear and obvious, influencers should supplement their posts with mentions such as “#advertising”.

And in Germany, authorities pay particular attention to clarity. Influencer content must include the words “Werbung” or “Anzeige” (advertisement/advertising) in the content and the description. These words have to be made clear “at first glance” rather than requiring closer inspection. That said, posts have to be ‘excessively promotional’ and uncritical to be considered an advertisement and therefore requiring disclosure. Tagging a brand, for example, is not considered to be promotional.

Regulations and rules on disclosure aren’t uniform, but there are core similarities between major markets. Marketers should follow these similarities and employ them in all influencer work they commission.

4. Do the work every time

A common theme across disclosure policies is repetition. There’s a movement to encourage brands and marketers to label every single new piece of promotional content as if it’s the first, and not to rely on previous influencer collaborations and the reputation of well-known creators to make. Essentially, companies should not assume their audience is aware of any potential partnership, and instead make it clear for every audience member—regardless of how clued-up they are.

5. Build a company policy

As this blog has covered, knowledge is power. Writing down that knowledge and sharing it among every employee and influencer a company works with makes that knowledge even more powerful.

Companies should draft an influencer compliance policy that explains the relevant regulatory guidelines, and social media platform guidelines—and use encouraging language to ensure the guidelines are followed.

6. Consider a payment solution to take care of compliance

As the use of influencers in marketing campaigns grows, finance departments are having to onboard influencers before they’ve had the chance to capture and process all necessary PII information. For example, a marketing manager might sign up a micro-influencer for a campaign—collecting their details over direct messages and a series of WhatsApps. When there’s no tool to capture all the information and keep it in one place, it can be hard to stay on top of privacy regulations which might result in payment delays.

Fortunately, many creator payment solutions have been developed in recent years to bridge this gap and help businesses avoid tax, PII, and security risks. Stripe is one of these solutions—a tool that enables companies to digitally onboard creators and gets them paid quickly. Used by Twitter, Substack, and Clubhouse, it auto-generates the required tax forms for creators and handles payment compliance.

Elsewhere, Tipalti is a UK solution used by Twitch and Roblox. It’s a digital solution that removes the need for finance teams to manually organise accounts payable. It includes financial controls so businesses stay on the right side of compliance, and, as a digital solution, it can be scaled to meet the growing employment of influencers by companies that use it.

About Kolsquare

Kolsquare is Europe’s leading Influencer Marketing platform, a data-driven solution that allows brands to scale their KOL Marketing strategies and implement authentic partnerships with KOLs (Key Opinion Leaders). Kolsquare’s technology enables marketing professionals to easily identify the best Content Creators profiles by filtering their content and audience, and to build and manage their campaigns from A to Z, including measuring results and benchmarking performance against competitors. Kolsquare has built the largest community of influencer marketing experts in the world, and offers hundreds of customers (Coca-Cola, Netflix, Sony Music, Publicis, Sézane, Sephora, El Corte Inglés, Lacoste, …) the latest Big Data, AI and Machine Learning technologies to drive inspiring partnerships, tapping into an exhaustive network covering 100% of  KOLs with more than 5,000 followers in 180 countries on Instagram, TikTok, Twitter, Facebook and YouTube. As a Benefit Company, Kolsquare has been pioneering Responsible Influence by championing transparency, ethical practices, and meaningful collaborations to inspire change.

Influencer Marketing Newsletter

Don't miss a thing!